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Wednesday, February 29, 2012

SPX Update: In a Surprise Move, the ECB Declares Bankruptcy

That got your attention! Too bad I'm making it up.

Yesterday, I gave my arguments in favor of the preferred count. Today, I was going to play devil's advocate, and actually wrote an entire article along those line. That took two hours. Then I scrapped it.

Then I re-wrote it. I've been charting and writing for almost 12 hours straight now, so I'm completely exhausted and eye may and up with a bunchch of typoses and spalleing airors.

After all the re-writing, I've decided I am going to publish this alternate count. There really wasn't much to add to yesterday, so instead of getting lazy, I tried to turn my views on their head. I don't want to confuse everyone with this devil's advocate attempt, but I don't want anyone to get screwed by this market either. Normally, I can rule out certain counts by using historical confirming indicators. But so far this market has blown those indicators up every time, so I feel like I'm charting with half the usual amount of tools.

Today's action has the potential to answer a lot of questions.

I'm favoring the preferred count by a 65-35 margin. Perhaps in this market I should favor it by a 80-50 margin, since indicators and math haven't really been working too well lately. I'm sure Ben or the ECB can print up the extra 30 percentage points I need in order to exceed 100%.

First the short-term count: I've tried my best to interpret the 5-minute charts in light of the preferred count, and have come up with an expanding ending diagonal as the most likely short-term possibility. As a result, the upper end of the target zone has increased a few points, to 1385. If this count is correct, the final wave could end at any time -- ending diagonals often end with a spike-high and quick reversal. The chart also shows the key short-term price markers.

The danger zone for bears is above the upper red trend line. If the market shows any acceleration above that line, then bears are in full retreat, and the move is likely to run.

Next the 10 minute chart.

And finally, the alternate count. I used the Wilshire 5000 to give me a chance to look at the market with fresh eyes, and this count considers the potential of an additional first and second wave in the structure. Normally, I'd use historical indictors to give me an idea of how believable this count is -- but those haven't been much help lately.

As I've said, in a "normal" market, I'm able to use confirming indicators to rule out certain counts with better confidence. But this market isn't normal -- it's being driven by the central banks instead of investor psychology.

Trying to navigate this market beyond the next couple hours has been akin to trying to fly a plane without instruments. The compass hasn't been working, the altimeter is broken, the control tower is speaking broken English, and the stewardess keeps insisting we eat the crappy quiche that's been in cold storage since the Truman administration.

I know bears are anxious to jump in and do something after all this time -- but I would caution those bears who choose to take action to stay nimble.

While I'm favoring the preferred count by 65-35, today the market will hopefully provide some clues to add confidence to, or subtract confidence from, that count -- with the long-awaited ECB announcement finally here. The first step for bears is to turn and hold this market back below the 2011 highs.

Again, this article was intended to be a devil's advocate approach. If you're looking for more "conviction," please go back and re-read yesterday's article. Trade safe.

what's so difficult to count? 1,2,3,4,5 and done... LOL. Man oh man, what a time to try to start to learn EWT. I hear ya dude, and I feel for ya trying to make something out of this mess.. well the futures are not going gang busters; essentially flat so it's certainly not Nov 30 or Dec 20 euphoria.

on a serious note: can wave 5 be equal or longer (in time than wave 3)? if not, then wave 5 has only MAX 3 days more to run, before it will be longer than wave 3 (which coincides exactly with this coming friday).

"Sources close to the International Swaps and Derivatives Association (ISDA) reported late yesterday that the organisation was tending to come down on the side of a CDS trigger decision in relation to the restructuring of Greek debt."

brought forward. potential IT tops for AAPLT1 536 ~ it hit 541 in o/n tradingT2 547 ~ oscillator buy pressure is still high, no backing off so this seems plausible, this would be the roughly 10% move I mentioned when AAPL was at 500 and warned ppl not to short itpredicted high hit exactly this morning on AAPL

Good morning SS,It would be a good idea I would say, to invest in Frost and Prechter's book as they are the definitive expounders of Elliott Wave Theory.But to answer your question; the only Rule (and Rules cannot be broken) is that wave 3 in an impulse wave can never be the shortest (in price). This holds true for diagonals too which by definition will meet that criterion although it isn't defined as a Rule.The time relationship is a rough guide which is a probability, not a 'must do' or 'must have'.So wave 5 can be anything it likes. Within the Rules.Hope that helps. :)Kind regards,UKDNYPS if any of this is in error I'm quite sure PL will put us right!

I love the broken cockpit analogy. It sure feels that way. These days, I take all blogs with a grain of salt, but at least yours is rational and humorous. Don't you feel like, these days what's the point of doing chart analysis? I guess that's why you scrapped and unscrapped.

Ben mentioned current improvement from job market is "far from normal," so you know who is cooking the job numbers. If the job number is a leading indicator of the economy, then we have to rewrite our economic theory.

That move took us below the lower bounds of the TL/wedge. In recent days you could buy those dips and count on a quick rally back into the supporting TL. Thats a dangerous move today considering we moved back from the top of the wedge. I'm not ruling out moving into the wedge - above 1373 range in the next few days, but I'm thinking we have our first close outside of it today.

I'm of the opinion that the additional risk in equities means that we won't be seeing as many LTRO dollars in equities at least not until the market corrects a "normal" amount, which I believe we will see finally.

Look at the move in silver $2 down in less than an hour. Katzo, would It be safe to say that wave 5 of 1 has finished, and 2 is starting with target to maybe 30-32 spot price? was es 65 broken earlier? what might be your T2 if after this bounce we break 65 again?

Good morning A1,could you possibly post your chart (of SPX ?) showing the triangle (diagonal?) please?Or if not possible, the figures... I'm having trouble seeing it.That would be very helpful.Kind regards,UKDNY

I use Jing (free to use) to grab to a local file. My charting software can also take snapshot to file. Then I post to PL's blog on the web page, clicking the "+ Image" button. It's a pain in the butt actually. I think what Katz does is probably the better way. Prob needs a Screencast account though.

Thanks for this. I understood all of it except the part about the buyer who came in and bought "something" (VIX?) deep in the money (calls?). This was supposed to be part of the package. Can someone fill in the blanks for me?Thanks.

PL....what's wrong with my math? VIX is trading just under $18. April 30 put is trading at $8.20 - $8.30. Buy the PUT and buy the VIX. Put the VIX to seller at $30, pay for my VIX at $18....I have a 4 point profit. Somethings not right.

I agree too. But, don't give up. There's a reason why TA is around and has been around through all major bull and bear markets, because it does work. One needs to know when it gives falls signals (e.g. divergences in strong up or down trends), especially stochastic oscillators are tricky. At the end; all is/should already be baked into the price action (e.g. that's why the markets didn't rally on the 539billion almost free money this time, whereas it did on Dec 20, 2011 - and of course on Nov 30, 2011 when FED made a deal with EU).

Wow I thought you have sold that at the low and re-enter at the bounce already, being such a nimble trader yourself. we seem to be forming a triangle on the 5 min chart....anyone can verify?? I am riding the short train with you all the way....by the way, what do you think of the move in silver? Do you think the wave 5 of 1 is over and now it is in 2?

its been record 'Contango' for a while between Cash VIX ($VIX) and the future out months.. high premium. thats been the problem w VXX and TVIX.. Once the cash VIX is higher than out month futures, we will have ' Backwardation'...

just noticed that the SPX perfectly hit the/PL's lower trend channel boundary at 1365 @11 ET... (The lower line goes through 1365 @ noon exactly... That's not shabby and it means it's still channel surfing for now... and so the drama continues...

Joining the chorus calling for a market correction, Erik Swarts Meridian Theory compares the current market to 1988 and 1994. Back testing his calls through a handful of his historical articles, I see a solid track record.

For what it's worth, I'd just like to show you folks how the $CAC ended up its day. The reaction to the announcements about LTRO (I don't even know what the announcement was), was pretty darned negative. FTSE and the DAX did the same but ultimately didn't fall as far on the day. But the action in the final hour and a half was very similar to what's seen on the chart below. I can't imagine why it should be any different for our markets. I think we end the day with a big sell-off. Again... please take my opinions with a grain of salt, since my record of getting it right "when I verbalize it" is running somewhere around 7%. lolhttp://stockcharts.com/h-sc/ui?s=$CAC&p=15&b=3&g=0&id=p53495901904

one of the reasons i held on all day to my short from 1376 es was that i am expecting a serious rout now, we had a number of fake outs, wondering if this one will be the one. love the alignment in my charts now saying a good down but seen this broken before.

Katzo: I totally agree. I think the Eur and GLD/SLV are foretelling a much larger selloff coming over the next few days. We also lost Dow 13K again, which has to demoralize the bulls.

Does your EW charting give you a downside target that you are aiming for? I am probably way too ambitious with my target, but ideally I would like to hold some swing trade positions until SPX 1290 or so.

had a MM over my house last night who wanted to put some of wife' stuff in the mrkt. i showed an EW chart, they could not understand it. I explained how the macd showed digression under the EW3 to 5 comparison they asked what the macd was. I explained candle recognition and they asked what a doji was. I asked why would you be going long up here (pointing to top of channel). they stated, what makes you think it is gong to go down? I stated, what makes you think it is gonna continue to go up (permabull, they could care less when you enter and timing, they look for a commish)? They said I want to move the money Wed. I said wait two weeks. They left scratching their head. we will see where we are in two weeks but i predict lower. who know tho, the contrarian does. . .

No way we close above the TL today. Should have figured that it would take something as rare as leap day to break that line. Still not ignoring the possiblilty that the market moves higher, but not a close back above that TL.

Sadly I did not recognize the broadening wedge earlier, otherwise I would have said it more clearly in my earlier pic, that time for short €/$ could have come... first I thought of maybe only on impulse down, for know looks even better.

spx cash closed above the lower trend line, we could get a bounce tomorrow before resuming lower. I closed out my short es around 61. Considering going long for a very small st trade once o/n session starts. If we don't bounce here, I think we'll definitely bounce at 56-57 area, so have defined risk.

For me they are different. The BW has to have specific inside moves of the waves, the trumpet or megaphone is more like maybe a triangle, maybe an EDT, maybe whatsoever... more broad defined. BW's gives you the creeps. Also the morning before the flash crash it showed in the DJ.

Yeah, MSFT is good for one decent product per decade. APPL, on the other hand: Have they ever had a product that flopped? Honestly, I have never owned an Apple product, but I've been cursing Bill Gates for 25 years. My next round of hardware will likely include an Iphone-5 & Ipad-3.

Leaving limit order in to buy more at 56.75. Unless ECB actually does declare bankrutpcy (there is no word for that in Greek, Greeks just always borrow more) I think tomorrow will be a pause before sell-off resumes Friday.

After a short pause the market will probably resume it's upward trend. The economic fundamentals or techicals don't seem to matter in this kind of market. Let the zombie-like upward momentum continue. But just remember the party can't last forever.

I converted 4 years ago. Now my life is good. :) But less people I do know, the ones I needed to help me with my computer problems, they are gone. And a lot of my family I got hooked on the apple also. And really, nobody complained to me. Ok, not the first two-four weeks...

ok, for real: The cheapest computer I ever bought, was a Apple iMac 24". Still running, still using, no feeling of being left behind with the hardware. Total cost of ownership, beat all my PCs before. But of course Win8 sounds not too bad also. But who cares.

And for real part 2: I first thought buying the apple was the dumbest idea ever for the first two weeks. Because so many things were different. Then I discovered, they were easier solutions every where. Since then I am sure to have wasted too much time on inferior products from Microsoft. But again, who knows, maybe Win8 will be great. But who cares.

Biggest problem was a hard disk failure. But then, change the disk, and let time machine do its tricks. After 2 hours everything running like before. Nothing lost, everything in place and I am not a geek.

Katzo...your wife actually entertained a MM with your knowledge of short term trading? Ever hear of Robert Mann or Ray Hanson? I found a book they pub'd in 1978..cost was $10...Titled "Nonrandom Profits" simple and effective way to invest (long term 3 to 7 years) with remarkable results. Rules are easy to follow, chart pattern easy to identify, holding time requires real discipline. Results are - 9 out of 10 double, 7 out of 10 triple and 3 out of 10 quintuple in value. I've attached a pic of the typical chart pattern and as I say, it's easily recognized in many equities traded in the USA. If interested, let me know via a post reply and I'll send you some pages from the original book.

The main question still in my mind is whether the fourth wave of this rally has already unfolded or not. My preferred view is that it has not, which suggests that a correction is due soon, followed by new highs. I'll simply need to see what the next decline looks like to aid in determining degree of trend.

I have been using Apple products for a few years now, I am a happy customer, except the itunes. However, I do feel that the top for Apple is in, in terms of innovation, with Jobs gone, things are going to be different. Have you guys seen the padphone commercial from ASUS? I think my next phone will not be iphone anymore....I definitely will not buy the ipad 3...apple customers are slowly moving away...my 2 cents

RUT has been struggling to get above the descending TL from the years earlier highs. I was kinda expecting the TL to be broken and the RUT to continue upward but the price action looks like the RUT is getting weaker.

Well, shouldn't have worked my tail off last nigh on alternate counts. Would have saved me a bunch of time to just say, "Yep, looks good so far. Still watching for a reversal at 1376-1378. Trade safe." :D

I don't really have a stance on whether a top is in or not, but I'm all but certain that the trend has is over. Maybe we trade sideways, with a chance of a breief spike to another high. Not suggesting a strong decline in the making but its hard to make the case for continued rally when there are so many indicators, divergences, bearish breadth indices clearly showing some downside. The market has managed to break last years high with many of the aforemened in place, but it can only hop so much higher on one leg, before correcting or turning back.

I would disagree with this "rule" for a reason. I agree that wave 3 should be longer than 1, and wave 4 should be longer than 2 -- but to me that's where the "rule" ends. Fifth waves in diagonals are the one place I routinely look for fifth wave failures -- it's actually fairly common for the fifth wave of a diagonal to either overshoot or undershoot the target.

First time since the first of the year, that this feels like an IT top may be in.

Though it's hard to imagine a real catalyst that would send us back below 1,300 for very long. The CB's have made sure that everyone is now flush with cash and needing a place to send it.Or this could have just been another run of the mill sell the news day. Trading below 1,360 tomorrow will not surprise me either way. What will be most curious to me is if the bots kick in an shoot everything back up once the fifteen minute chart indicators really bottom out next. Shorting the open today and adding on the way up to 1,377 this morning was one of the easier trades I've made this year. I wish they could all be that easy.

I have to say, with the way things have been since December, if the preferred count actually hit the top in this market, and especially since right now it's that long-standing Fib 1376-78 target -- then I myself will be somewhat impressed at this stage. :o

My cousin also went whole hog with Apple products a couple of years ago. It's kind of like owning a John Deere tractor -- nothing works like a Deere....until it doesn't, and then you find out the repair costs are astronomical. Told my cousin to back-up their time machine to a second source because the time capsule seems to have a half-life of only 9 months.

Thanks. I think that's a key realization for this market -- and that's why the historical precedents haven't worked so well. The market usually moves in predictable patterns due to psychology, and history repeats (thus patterns repeat) because people don't change. But with the CB's in there, everything has become distorted to a degree. Eventually, I'll figure out how to compensate for that distortion.

I know Ben has said no QE3 but what about the other central banks? They are making up for it. Is the ECB due to inject liquidity starting today. Also, Japan,UK and The Swiss are pressing the QE panic button too. I dont trust these markets and think that PLs excellent write up nails the situation spot on. I see rising markets until end of April before the summer discount sale starts!

PL stop apologizing, all of us know what's going on, just take a look at the leg of this rally and tell me it does not match exactly in degree and duration the rallies that followed the prior FED POMO's.

Sure we are going to keep front running this and taking some minor losses because we want the satisfaction of being there when this thing drops 500 plus points in one day and the clowns on CNBC get all long faced and unhappy.

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